Weekly trading guide: SBI extends sideways trend

SBI (₹179.7)

The stock of SBI continues to stay in the sideways trend which has been in place for the past one month. The price has been oscillating in the band between ₹173.5 and ₹200. Notably, ₹173.5 is the one-year low.

As the overall trend is bearish and the price marginally declined towards the end of last week, the stock seems to be inclining towardsdowntrend. However, until the stock remains above ₹173.5, there are chances of a recovery. But the recovery can be limited by the resistance at ₹200. Taking into account these factors, the next leg of trend cannot be confirmed until either of ₹173.5 or ₹200 is breached.

The daily relative strength index is showing a fresh downtick and it stays below the mid-point level of 50 — a bearish indication. The moving average convergence divergence in the daily chart is on an uptrend, but remains in the negative territory. Until the price stays within the range, traders can stay on the sidelines.

On the back of the downtrend, if the price breaks below ₹173.5, one can sell the stock with a stop-loss at ₹190. Below ₹173.5, the support is at ₹160.

ITC (₹180)

After gaining for three consecutive weeks, the stock of ITC declined and posted a loss last week. The price has slipped below the 50-day moving average, but stays above the crucial level of ₹175. The support at ₹175 is significant as the level coincides with the 38.2 per cent Fibonacci retracement level of the previous bear trend; as long as the price remains above that level, the stock can be bullish.

The daily relative strength index is above the mid-point level of 50, but shows signs of bulls losing strength. On the other hand, the moving average convergence divergence indicator in the daily chart, though remains in the positive territory, is signalling that the uptrend is losing traction.

Hence, even though the price stays above the important support, the indicators signal that the bull trend might be weakening. So, traders can buy the stock with a stop-loss at ₹175 if it regains momentum and rallies above ₹185.

On the upside, the nearest resistance is the critical level of ₹200, where 61.8 per cent Fibonacci retracement level of the previous bear trend lies. Above that level, the stock can rally to ₹207.

Infosys (₹658)

The stock of Infosys, which has been consolidating for the past two weeks, broke out of the critical resistance band between ₹655 and ₹665 last Thursday. But on Friday, it moderated after facing the 50-day moving average resistance at ₹685, and closed the week at ₹658.

The decline on Friday could be a pullback towards the earlier support band and so the stock is likely to resume its uptrend. Substantiating the bullish bias, the daily relative strength index remains above the mid-point level of 50. On the other hand, the moving average convergence divergence indicator is in the upward trajectory.

Also, the price stays above the 21-day moving average. Hence, one can take a bullish view on the stock and initiate fresh long position on declines with a dynamic stop-loss. While the initial stop-loss can be at ₹600, shift it upwards with a gap of 1.5 times the average true range as the stock price appreciates.

The stock can be expected to rally towards ₹700, where the 61.8 per cent Fibonacci retracement level lies. A breakout of that level can take the stock to ₹724.

RIL (₹1,417)

Keeping up with the recent positive momentum, the stock of Reliance Industries rallied sharply during the past week. The price went above the 50-day moving average and broke out of a series of resistances.

The stock, after marking an intra-week high of ₹1,494.9, closed at ₹1,417, registering a positive close for fifth consecutive week — a strong bullish indication. The daily relative strength index continues to rise in tandem with the stock price, showing good bullish strength. Also, the moving average convergence divergence indicator in the daily chart remains in the positive territory and continues to signal substantial bullish momentum.

As the stock is directionally positive, traders can go long in the stock. But considering the risk-reward ratio, rather than initiating longs at the current level, one can buy the stock with a stop-loss at ₹1,300 if it moderates to ₹1,370.

Alternatively, if the stock rallies without a pullback and breaks out of ₹1,465, buy the stock with a stop-loss at ₹1,400. On the upside, ₹1,500 is a strong resistance. A breakout of that level can lift the stock price to ₹1,540.

Tata Steel (₹267.5)

The stock of Tata Steel, after gaining for two consecutive weeks, posted loss last week. But the stock continues to oscillate within a broad range between ₹250 and ₹310; as long as it remains between these levels, the next leg of the trend cannot be confirmed. Notably, the 23.6 per cent Fibonacci retracement level coincides at ₹310, making it a considerable hurdle.

The daily relative strength index has come down and remains below the mid-point level of 50. The moving average convergence divergence indicator in the daily chart, though in an upward trajectory, is signalling a loss in upward momentum.

Since the stock continues to consolidate, traders can hold back fresh positions. A breakout of ₹310 can potentially lift the price to ₹325 and ₹345 — the 38.2 per cent Fibonacci retracement level. Whereas, if the stock slips below ₹250, it might fall to ₹240 and ₹225.

But since the stock is trading near the lower boundary of the range, traders with high risk appetite can buy the stock on declines with a stop-loss at ₹250.